27 June 2011

Property Investment - Cash Flow Games


In CFA Level II, we learn about the property investment. Basically the concept of property investment is  the cash flow as well as ROI. In this post, I would like to illustrate in more detail on the cash flow movement in the property investment.


If you are just a part time investor, your cash flow movement is in between salary income - living expense and property investment outflow + rental income + capital gain. So the formula of the cash flow here should be:

Net Cash Flow Generated = (Salary Income - Total Expense) - (Property Investment Cash Outflow )  + (Property Investment Cash Inflow) + (Mortgage Loan) - (Interested Paid)

Property Investment Cash Outflow: Cash Deposit (perhaps 10%-20% of the property value), Lawyer stamp duties, property insurance, title transfer fees, property maintenance fees,

Property Investment Cash Inflow: Capital Gains after selling the property, Rental Income, Tax Savings from Property Depreciation

Mortgage Loan: The money that you can leverage to purchase more properties given limited cash flow.

Interest Paid: The interest that you have to pay to the mortgage bank.

To generate a net cash flow, you have to ensure that all the elements above is fully optimized until you have a positive net cash inflow to your pocket. As time grows, you will have more cash in your pocket and you will be able to live in the life style you want.


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